Facebook’s Zuckerberg: No tax benefit from philanthropic initiative

Mark Zuckerberg and his wife, Priscilla Chan, say they will put 99 percent of Zuckerberg’s Facebook Inc shares into a new philanthropy project focusing on human potential and equality. Video: Reuters Mark Zuckerberg has written a post on Facebook defending his plans to transfer 99 per cent of his family’s Facebook stock to a limited liability company that would pursue various community projects.

The 32-year-old Facebook boss, who became a parent for the first time with the birth of daughter Max, wrote a 2200-word Facebook letter to his newborn on Tuesday, welcoming her into the world. To show his commitment to his daughter’s generation, Zuckerberg announced the creation of a new company – not a charitable trust, but one which would explicitly invest in socially impactful issues – where he will spend 99pc of his Facebook shares – the equivalent of $45bn over a lifetime. The media response has spanned the gamut of reactions from slightly patronising to useful advice on how Zuckerberg should spend the money for maximum impact, all the way to cynical and reasoned debates on whether the money is truly charitable, and/or just a smart way for the Zuckerberg-Chan family to avail of various tax benefits by donating its sizeable wealth to its own Foundation. For now, the move allows Mr Zuckerberg to relinquish wealth, but not control, as he will retain the votes associated with any shares transferred to CZI.

Because they are tax-exempt, traditional nonprofit organizations and foundations face restrictions on for-profit endeavors and political activity, two areas in which Zuckerberg and Chan have pledged to be active. He anticipates remaining the controlling stakeholder of Facebook “for the foreseeable future”, and plans to sell, or give away, no more than $1 billion of Facebook stock each year for the next three years. Mr Zuckerberg is far from the first tech titan to pledge billions to philanthropic activities, but he is following a slightly different path to Bill Gates, Microsoft’s founder. On the very post in which he defended his plans, one Australian man commented, “just another way to get your billions tax-free.” Zuckerberg quickly responded, “This isn’t correct and the link you shared has a bunch of false information. While the world’s richest men (they were all men) in the 20th century all made their money in the gritty, cutthroat worlds of oil and steel, the billionaires of today have built their industry on the bedrock of the internet.

In this, the Zuckerbergs are following in the footsteps of Pierre Omidyar, founder of eBay, an online marketplace, who grew frustrated by the constraints of charitable status. It’s clear tech founders, in particular those in Silicon Valley, are self-made – they have amassed large fortunes mostly from inventing everything from search engines, to social networks and strap-on cameras. He gives the example of an investment in a solar lantern that cost less than $10 a unit, which meant people did not have to burn dangerous kerosene, and which he says would have been technically difficult to achieve through a private foundation. The rising wealth has led to the inevitable growth of a bubble subculture in the Valley, with backlash against arrogant, clichéd startup-types, who are mockingly referred to as “Glassholes” in reference to the now-defunct Google Glass. But while some technology entrepreneurs may be getting rich inventing lazier ways of doing your laundry or apps that objectify women, those who have garnered the most success seemingly want to invest in a better future.

According to the Chronicle of Philanthropy’s Philanthropy 50 list, which compiles data on America’s biggest donors each year, 10 of the top 20 biggest donors of 2014 are from the technology world. The obvious ones are Bill and Melinda Gates, who got the top spot overall having donated nearly $2bn to charitable causes ranging from education in the United States to healthcare in the developing world, through their eponymous foundation. But there were several new, unexpected entrants too – Whatsapp founder Jan Koum, 39, gave 555 million dollars to the Silicon Valley Community Foundation, ranking him number 4 on the list.

Google’s Sergey Brin who comes in at number 9, donated his $382m partly to Ashoka, a nonprofit that brings together social entrepreneurs to work on education, the environment, and women’s issues. The reason that tech founders are giving generously could be a reflection of the current financial environment – it’s never been easier to raise investment, valuations are peaking, unicorns and even decacorns – companies valued at ten billion dollars – abound.

Mr Koum said he wished to “set the record straight” on the nature of the partnership with Facebook Photo: Eyevine Sean Parker, for instance, has set up an allergy research centre at Stanford University with part of his endowment. The reason, he says, is partly because he suffers from anaphylactic allergies himself and wants to find a cure so his children won’t suffer the same crippling, life-threatening symptoms. Only two decades later, the memories have clearly not faded: just last year, he signed off the $19 billion sale of his company to Facebook at the very same welfare office.

Zuckerberg’s previous donation of $100m to public schools in New Jersey is proof of what happens when money is mismanaged – it can do more harm than good. But ultimately, tech philanthropists are earmarking their money for our generation’s most gnarly social problems – healthcare, poverty, education, access to internet for all.